WHAT TO DO NOW: Remain bullish but keep an eye on things—the vast majority of the overall evidence is still positive, but there’s no question stocks have had a huge run, and the recent selling could go on for a bit to shake out some weak hands. We have no major moves tonight, but we are going to place Dynatrace (DT) and Floor & Décor (FND) on Hold. Details below.
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The market is getting walloped today after a huge inflation report led to a horrible bond auction that kicked interest rates higher. As of 2 pm, the Dow is off 163 points, but the Nasdaq is down 200 points and many hot growth titles are pulling in hard.
While the selling is sure to be blamed on inflation (a popular whipping boy these days) or interest rates, the real reason is probably simpler: Stocks have had a big run during the past few weeks, and that brought in a lot of hot money that pushed some sentiment and other figures (like the number of stocks hitting new highs, which recently exploded to multi-month peaks) to stretched levels.
So far, the selling has been normal for the major indexes (our Cabot Tides remain solidly positive) and, while there’s been some dents among leading stocks (especially today), few have truly acted abnormally (most dips came in names that have recently gone vertical). Thus, overall, we remain bullish, with the odds favoring this pullback leading to another leg up.
That said, we don’t advise being complacent, either—after such a big run, the market will likely need more than just a day or two to shake out some weak hands. Plus, you want to keep an eye on stocks that have struggled a bit in recent days to make sure any follow-on selling stays reasonable.
All in all, then, we remain heavily invested, but we do have two small changes—we’re going to place both Dynatrace (DT) and Floor & Décor (FND) on Hold tonight, as both are working through some post-earnings indigestion here.
One more note: Ambarella (AMBA) was hit hard today on the market’s weakness and news that its CFO is taking a health-related leave of absence. Again, we’re not complacent, but even after today’s sharp plunge, the stock is still a few points above its 25-day line (now at 177.5) because of the recent huge run. We’ll be watching closely, but (a) the uptrend is still intact, and (b) with “only” a half-sized position and a solid profit we advise giving the stock room to maneuver. If you don’t own any, we’re OK starting a small position here or on further dips. BUY A HALF
We’ll have more in tomorrow’s (November 11) update—don’t hesitate to email me mike@cabotwealth.com with any questions.